Journal article

Decumulation 101: the basics of drawing down capital in retirement

Retirement Retirement income Superannuation Financial inclusion New Zealand
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Decumulation in the retirement income context is the using up of retirement savings by way of drawing out regular income – for example, a fixed amount each month. It’s the converse of accumulating retirement savings while in paid work by regularly putting money aside. And return on investment plays its part in both: in the accumulation phase it enhances the amount saved; in the decumulation phase it enhances the regular amount that can be paid out.

The first question is whether decumulation is something that actually needs any policy attention. Since the answer to that question here is a qualified yes, the next part of this article outlines a number of decumulation methods, considering such matters as cost, risk and flexibility. The desirability of any form of decumulation to individuals will naturally vary according to their preferences in respect of those points. The article concludes by positing some public good components in respect of each decumulation method, and setting out some possible government interventions in response.

Geoff Rashbrooke is a Senior Associate of the Institute for Governance and Policy Studies. He is a consultant on insurance and pension schemes and was formerly Government Actuary.

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